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Stock Picks Bob's Advice
Sunday, 30 November 2008
A Reader Writes: "Maybe stock selection is worthless." and a closer look at my Trading Portfolio!

Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

My loyal reader and commenter, Doug S. gave me a prod this weekend about writing a bit more on the blog.  He is finding it difficult to get very excited about any particular stocks and is finding the entire market rather discouraging. 

Doug wrote:

"You have been very quiet both publicly and privately recently. Any thoughts where the general market may be heading short term? Individual stock selection has been a waste of time(and money) for the last few months."

Doug, you are right on the mark with this letter.  I have indeed been a bit 'quiet' and share your own sense of discouragement at the relentless correction and bear market we have been experiencing.  So many 'right' stocks have been acting simply 'wrong'!

Using my 'point & figure' approach to charts, let's take a look at a point & figure graph from StockCharts.com on the Dow:

We can see that the Dow peaked at about 14,150 in October, 2007, and hit a recent low this month (November, 2008) at about 7,450.  The stock market is currently rebounding and closed at 8829 on November 28, 2008.  The chart is, however, far from encouraging.  The trend appears to continue to be lower--with lower lows and lower highs.  At least technically, I don't see anything that appears to be very promising. 

Sorry to be so gloomy.  But I can see what everyone else is looking at as well.

So what is an investor to do?

I feel like hibernating like this bear.  Oh that is a very mixed metaphor so excuse me :)

But I do not believe that picking stocks is now obsolete.  It is just that the over-riding influence on all of our investments has been the "M" in CAN SLIM.

My approach to investing has always been that I would try to maximize my own investments by picking what I thought were the 'best' stocks to own and yet being quite aware of the possible effects of both a climbing 'bull' market as well as the ravaging effects of a 'bear' market!

In fact, my own approach which reduces my holdings down to a minimum of 5 (out of a maximum of 20) positions was not even adequate to deal with the tremendous correction we are facing.  Thus, I recently reduced my 'replacement' positions in the bottom 5 to 1/2 of the average of the remaining holdings.  In addition, in light of the record volatility of the market with hundreds of points in both directions in the same day becoming the norm, I have expanded my exposure to loss in any individual holding to 16% from 8% in my bottom 5 holdings only.

So I share your frustration.  But I believe that we are closer to the bottom than the top and that the market will actually start moving higher before the recession is over, moving in anticipation of the actual economic recovery.

I have always pointed out that I am not able to call a bottom, a top, or anything in between.  However, as an observer of the market, I can respond to the actions of my own portfolio that I hope will continue to generate 'signals' to let me know whether I need to continue to pull back from equities or whether it is time to shift some of my cash position into new holdings.  

As part of my own effort to respond to the market when it does turn positive, I have changed my own arbitrary sizing rule for positions to the 125% of the average of my holdings on purchases above my minimum of five holdings, and have, as I have indicated, reduced the position sizes to 50% of the average holding on replacement purchases to maintain my five position exposure minimum.

I hope that these strategies will help me respond to market opportunities yet continue to allow me to protect my account value in the face of a savage bear market.

Speaking of my holdings, let me use this opportunity to briefly review my five holdings.  This list will show the names of the stocks, their symbols (in alphabetical order of their trading symbols), the number of shares held, date of purchase, the cost basis, latest price (11/28/08), and the % gain or (loss).

Current holdings:

Haemonetics (HAE), 50 shares, 10/27/08, $51.70, $57.19, 10.62%

Johnson Controls (JCI), 95 shares, 11/20/08, $14.80, $17.66, 19.05%

PetSmart (PETM), 104 shares, 11/20/08, $15.58, $17.55, 12.67%

Rollins (ROL), 350 shares, 10/16/08, $14.69, $17.32, 17.91%

WMS Industries (WMS), 83 shares, 10/28/08, $20.12, $24.65, 22.49%

In terms of my overall portfolio, I currently have $21,903.32 in a Money Market account, and $14,470.35 in equities as described above.  As of 11/28/08, I have $2,044.86 in unrealized gains in my trading account and this year, I have a net gain of $609.10, resulting from net short-term losses of $(8,679.66) and net long-term gains of $9,288.76. The total account value is $36,374.27.  I am currently adding $200.00/month in new cash into the account each month.

My entire strategy is a very tedious business.  When the market turns around, I am likely be slow in re-entering, but I shall commit new funds in a methodical fashion as my own stocks indicate.  In the same fashion, if the bear market continues, I shall strive to protect my account with the same conservative stock management that has served me well thus far.

I am not sure if I adequately answered your question and comments Doug, but I came out of my slumber for a short while to write.  Now, back to that cave and some more sleep.  Will someone please wake me when it is all over :).

If you have any comments or questions, please feel free to leave them right here on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 7:35 PM CST | Post Comment | View Comments (1) | Permalink

Tuesday, 2 December 2008 - 10:13 PM CST

Name: "Justin MacArthur"
Home Page: http://www.commissionblueprintreviews.net

The markets are so volatile these days! Everyday I look at my portfolio with great concern. Your strategy seems logical and hopefully this whole mess with blow over soon.

  <a href="www.commissionblueprintreviews.net"> Commission Blueprint </a> Editor

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